111124 nk nacd business ethics and csr

Business Ethics and CSR for Commissioners

and Directors

Jakarta, November 23, 2011

Noke KiroyanPresident Director and Chief Consultant

KIROYAN PARTNERS

Commissioners and Directors Course Program (CDCP)

PREVIOUS ASSIGNMENTS

o President Director, PT Newmont Pacific Nusantara (10/05 – 12/ 06)o Chairman, PT Rio Tinto Indonesia (10/03 – 09/05)o President Director, PT Kaltim Prima Coal – assigned by Rio Tinto (12/01 – 10/03)o President Director, PT Rio Tinto Indonesia and Chairman, Rio Tinto Foundation (09/97 – 11/01)o CEO, Salim Oleochemicals Inc., USA (04/96 – 08/97)o Country Rep. Salim Group cum Director and Treasurer Albright & Wilson Ltd., Australia (12/94 – 03/96)o Managing Director, Salim Deutschland GmbH, Germany, (10/91 – 11/94)o Siemens Indonesia, starting as Management Trainee, ending as President Director, PT Siemens Indonesia (02/74 – 09/91) 2

The Facilitator

NOKE KIROYAN – President Director & Chief Consultant, Kiroyan Partners· Commissioner, PT Agincourt Resources· President Commissioner, PT Amstelco Indonesia Tbk.· Independent Commissioner, PT Asuransi CIGNA· Commissioner, PT Wana Hijau Nusantara (Macquarie - REDD)

CURRENT PUBLIC SERVICE AND PROFESSIONAL MEMBERSHIPS

Chairman, International Chamber of Commerce – Indonesia (ICC) Co-Founder and Chairman, Board of Patrons, Indonesia Business Links (IBL) Business Advisory Council Member, United Nations Economic and Social

Committee for Asia & the Pacific (UNESCAP) Partner, Partnership for Governance Reform in Indonesia Member, National Committee on Governance (KNKG) Founding Member and Advisor, UI Center for Governance Studies (UI – CGS) Charter Member, Institute for Commissioners and Directors of Indonesia (LKDI) Member, Australian Institute of Company Directors (AICD) Trustee, Padjadjaran University (UNPAD) Trustee, The United States – Indonesia Society (USINDO) Trustee, Fulbright Indonesia Program (AMINEF) Advisory Board Member, The Nature Conservancy (TNC)

TERTIARY EDUCATION Postgraduate Diploma in Business Administration, Heriot-Watt University, Edinburgh,

UK Bachelor of Arts in Liberal Studies, Syracuse University, New York, USA Bachelor in Communication Science, Padjadjaran University, Bandung, Indonesia Industriekaufmann (Diploma in Commerce & Accounting for Industrial Companies),

Nürnberg, Germany

Conceptualization of CSR and Ethics

Regulating CSR: Law No. 40/2007

CSR and Sustainable Development

Reporting on CSR

Convergence of Concepts

Standardizing CSR: ISO 26000

CSR and Good Corporate Governance

At the heart of CSR: Stakeholder Theory

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Topics for Discussion

Evolution of the CSR ConceptPre – 1950 • Personal philanthropy of business people

1950s • Frank Abrams (Standard Oil of New Jersey): “Management’s Responsibility in a Complex World” (HBR 1951)

• Howard R. Bowen:” Social Responsibilities of the Businessman” (1953)

1970s • Morrell Heald: “The Social Responsibility of Business: Company and Community, 1900 – 1960” (1970)

• Archie B. Carroll:”The Four-Part Model of Corporate Social Responsibility” (1979)

1984 • R. Edward Freeman: “Strategic Management: A Stakeholder Approach “

1987 • Brundtland Commission: Sustainable Development

1992 • Earth Summit in Rio de Janeiro

1997 • John Elkington: Triple Bottom Line

1999/2000 • The Global Compact and Millennium Development Goals

2000s • Ethical conduct of business (post Enron, Tyco, WorldCom, Parmalat and others)

Mid-2000s • Mainstreaming of CSR and convergence of concepts

2010 • ISO 26000 international standard

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Voluntary policies and actions beyond legal compliance

Mandatory compliance with the laws

Voluntary policies and actions beyond legal compliance

STRATEGY AND COMPETITION

ETHICAL CONDUCT OF BUSINESS

Human rights Initiatives

Anti-corruptioninitiatives

EnvironmentalPolicies

EmploymentPolicies

CommunityDevelopment

TransparencyPolicies

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LAWS AND REGULATIONSCOMPAN

YLAWS

ENVIRON-MENTAL LAWS

HUMANRIGHTS LAWS

ANTI-CORRUPT

-ION LAWS

LABOR LAWS

STOCK-MARKETRULES

Voluntary Policies and Initiatives beyond legal compliance

CSR: Beyond Compliance

Ethical Decision Making

Ethical Responsibility

Legal Responsibility

Economic Responsibility

1

2a

3

2b

Area 1 – Profitable, legal, ethical :Go for it!

Area 3 – Legal and ethical but not profitable. Find ways to seek profitability

Area 2b – Profitable and legal. Probably ethical too. Proceed cautiously.

Area 2a – Profitable and legal. Proceed cautiously

(“Business & Society: Ethics and Stakeholder Management,” Archie B. Carroll & Ann K. Buchholtz, 2009) 6

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Current Mainstream Definition of CSR

The commitment of businesses to behave ethically

and to contribute to sustainable economic

development by working with all relevant stakeholders

to improve their lives in ways that are good for business, the sustainable development agenda,

and society at large.

(The World Bank Group, 2008)

Responsibility of an organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior that

Contributes to sustainable development, health and the welfare of society;

Takes into account the expectations of stakeholders;

Is in compliance with applicable law and consistent with international norms of behavior; and

Is integrated throughout the organization and practiced in its relationships.

Social Responsibility in ISO 26000

8(Adapted from “ISO 26000: Guidance on social responsibility ,” 2010 )

Three Levels of Understanding on CSR

CSRas corporate philanthropy

CSRas risk management

CSRas

value creation

InnovationSustainable business models

Fundamental strategic and

operational impact

Compliance

Medium to high strategic and

operational impact

Little strategic or

operational

impact

Provide fundingand skills

(UN Global Compact as cited in “Corporate Social Responsibility in a Global Economy,” 2009) 9

• Focus on jobs, profits, and paying taxes with a legal compliance orientation

• Since there is no corporate citizenship strategy, leadership tend to be out of touch with issues and relationships tend to be unilateral

• When issues arise from the societal domain they tend to react defensively and communicate unilaterally

• Companies begin to introduce philanthropy and some degree of environmental management

• Leadership becomes aware of the need for a “social license to operate”

• Still reactive rather than proactive

• Begin communicating with CSOs and NGOs on a project basis rather than systematically and strategically

• Companies begin to pay real attention to stakeholders

• Adopt a more responsive stance to stakeholders with programs based on their interests and needs

• Willingness to engage with CSOs and NGOs that have concerns about the business’ practices

• Willingness to begin being more transparent through public multiple bottom- line reporting

• Companies begin to integrate their business models more holistically with corporate citizenship activities

• Responsibility management

• Leadership begins to understand that reputation crucial to success and that corporate citizenship is integral part in developing reputation

• Incorporate external assurance such as responsibility auditing by outside agencies

• Full disclosure of what is happen-ing within the company including negative information via social reports

• “Changing the game” by creating new ventures or markets that have pro-social benefits

• Engage with wide range of civil society. Governmental and non-governmental enterprises

• Leading on sustainability and business-society relationships

Elementary Engaged Innovative IntegratedTransform-

ing

Stages of Corporate Citizenship and CommunicationStrategies

(“The Paradoxes in Communicating Corporate Social Responsibility,” Sandra Waddock and Bradley K. Googins in “ The Handbook of Communication and Corporate Social Responsibiliy” – Øivind Ihnen, Jennifer L. Bartlett and Steve May [eds.], 2011)

10

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Social and environmental responsibility is

the commitment of corporations to

participate in sustainable economic

development to improve the quality of life

and the environment in ways that are

beneficial to the corporation itself, the local

communities as well as society at large.

Chapter I Article 1 Paragraph 3

Law No. 40/2007 on Corporations (UU PT)

Chapter V Article 74

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1) Corporations in the business of and/or whose business relate to natural resources must conduct social and environmental responsibility

2) Social and environmental responsibility as stipulated under paragraph 1) is a corporation’s obligation that is budgeted and treated as costs of the corporation and implemented with due consideration of propriety and reasonableness

3) Corporations that neglect their obligation as stipulated under paragraph 1) will be sanctioned under the prevailing laws

4) Further legislation on social and environmental responsibility will be established in a Government Regulation

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After more than 3 years, the implementing regulations as stipulated under Article 74 paragraph 4) are yet to be issued, in the meantime various government bodies at central and regional levels are taking matters into their own hands, e.g.:

East Java government preparing Regional Regulation (PERDA) to levy 2.5% of company profits for welfare in the name of CSR

Minister for Improvement of Underdeveloped Regions targets 65% from “CSR funds”

Minister for State-owned Enterprises to draft regulations for “CSR funds” to promote sports and arts

Minister for Home Affairs to draft laws on a forum for management of CSR in the regions under his auspices

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The UN Global Compact

Labor Standards

3. Freedom of association and recognition of collective bargaining

4. Elimination of forced and compulsory labor

5. Abolition of child labor

6. Elimination of discrimination in employment and occupation

(United Nations, 1999/2000)

Environment

7. Support a pre-cautionary approach to environment

8. Promote greater environmental responsibility

9. Encourage environmentally friendly technologies

Anti Corruption

10. Work against

all forms of

corruption,

including

extortion and

bribery

Human Rights

1. Support and respect protection of human rights

2. Avoid being complicit in human rights abuses

Sustainability Reporting

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INCLUSIVITY - calls for the organization to identify its stakeholders and explain how it has responded to their needs

RELEVANCE AND MATERIALITY - requires coverage in the report of issues and indicators that would substantively influence the decisions of stakeholders

COMPLETENESS - entails providing information sufficient to enable stakeholders to assess economic, environmental and social performance in the reported period

(“The Oxford Handbook of Corporate Social Responsibility” – Andrew Crane et al, 2008)

Global Reporting Initiative (GRI) • currently the most comprehensive and influential• de facto standard for Sustainability Reporting• its principles displays profound stakeholder orientation:

Summary of UN Global Compact and GRI Alignment

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UNGC Communication on Progress (COP) Element

Global Reporting Initiative G3 Guidelines Disclosures

A statement of continued support for the Global Compact in a message from the CEO.

Strategy and Analysis:Support for the Global Compact and how the ten principles influences the company’s strategy can be presented in a CEO letter.

A description of practical actions (commitments, policies, systems and activities), including, if appropriate, partnerships created, that participants have taken to implement the Global Compact principles during the previous year.

Governance, Commitments, Engagement:Descriptions of statements of mission or values, codes of conduct, principles, charters, or other initiatives the company endorses that assist the company in addressing sustainability issues, along with high level processes for setting strategies, defining risk and opportunities, can be used to demonstrate commitments to implementation of GC principles.

Disclosure on Management Approach (DMA):Overview of the company’s management approach in each category (e.g. human rights) can be used to describe how the GC principles are put into practice.

Select Performance Indicators:Select performance indicators ask for description of actions in addition to quantitative data.

Measurements of outcomes using, as much as possible, standard indicators or metrics.

Performance IndicatorsStating performance shows outcomes and results for economic, environmental and social categories. Performance on each of the GC principles is covered with one or more indicators.

(“Making the Connection: The GRI Guidelines and the UNGC Communication on Progress,” UNGC Office, 2007)

Annex: Examples of voluntary initiatives and tools for social responsibility

Sustainable development

Recognizing social responsibility

Stakeholder identification and engagement

Organizational governance

Related actions and expectations

Human rights

Labor practices

The Environ-

ment

Fair operating practices

Consumer issues

Community involvement/development

Practices for integrating social

responsibility throughout an organization

The relationship of an organization’s

characteristics to SR

Understanding the social responsibility of the organization

Reviewing and improving an organization’s actions and

practices related to SR

Enhancing credibility

regarding SR

Voluntary initiatives for social

responsibility

Communication on social

responsibility

Scope Clause 1Guidance to all types of organization regardless of their size or location

Definition Clause 2Terms, abbreviations and abbrev. Terms

UnderstandingSocial Clause 3ResponsibilityHistory, Characterist-ics, Relationship between SR and Sustnble. Developmnt..

Principles of Social Clause 4Responsibility• Accountability• Transparency• Ethical Behavior• Respect for

stakeholder interests• Respect for rule of

law• Respect for internatnl

norms of behavior• Respect for human

rights

Two fundamental practices of social responsibility

Social resp. core subjects

Integrating social responsibility throughout an organization

Clause 5

Clause 6

Clause 7

Schematic overview of ISO 26000

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Bibliography: Authoritative sources and additional guidance

(Adapted from “ISO 26000: Guidance on social responsibility,” International Organization for Standardization, 2010 )

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Employees

Manager Manager Manager Manager

Board ofDirectors

AGM Board ofCommissioners

Suppliers Customers

CG in broadsense

CG in narrowsense

Corporate Manage-ment

Government(Regulator) Creditors

Other groups Community

(Adapted from Forum for Corporate Governance in Indonesia, 2005)

Corporate Governance in Perspective

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Corporate Governance

Narrow Sense

• Structure and functioning of boards of directors and rights and prerogatives of shareholders in boardroom decision-making.

Broad Sense

• The whole set of legal, cultural, and institutional arrangements that determine:• what publicly traded

corporations can do, • who controls them, • how control is

exercised and• how the risks and

returns from the activities they undertake are allocated.

(“Ownership and Control: Rethinking Corporate Governance for the 21st Century” – Margareth M. Blair, 1995)

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Good Corporate Governance PrinciplesA company must provide material and relevant information that is easily accessible and understandable by stakeholders and include issues not mandated by laws but also other information deemed necessary by stakeholders.

Transparency

A company must be accountable for its performance transparently and fairly. Thus the company must be managed in a proper and measurable manner considering the interests of shareholders and other stakeholders.

Accountability

A company shall abide by laws and regulations and fulfill its responsibility to the communities and environment for the purpose of maintaining long term sustainability of the business and be recognized as a good corporate citizen.

Responsibility

Independence

In conducting its activities, a company must always consider the interests of shareholders and other stakeholders on a fairness principle.

Fairness

To accelerate the implementation of GCG principles, a company must be managed independently with an appropriate balance of power, in such a manner that no single company’s organ shall dominate the other.

(“Indonesia’s Code of Good Corporate Governance” – National Committee on Governance, 2006)

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Stakeholder Theory

Any group or individual who can affect or is affected by the achievement of the organization

objectives

(“Strategic Management: A Stakeholder Approach,” R. Edward Freeman, 2011)

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Expanded Stakeholder Map

INTERNAL

INTERNATIONAL

NATIONAL

LOCAL

ContractorsEmployees

Trade Unions

Local government

Local NGOs

Suppliers

Local community

Local media

Customers

Local interest groups

National government

National media

CustomersAcademic institutes

Think tanks

InvestorsNational

NGOs

Industry & business

assoc.

Industrial customers

International NGOs

Multilateral investors

Customers

International media

(“Unfolding Stakeholder Thinking: Theory, Responsibility and Engagement” – Jörg Andriof, Sandra Waddock, Bryan Husted, Sandra Sutherland Rahman, 2002)

(“The Pyramid of Corporate Social Responsibility – Toward the Moral Management of Organizational Stakeholders ,” - Carroll, A. B., Business Horizons No. 34, 1991)

Stakeholder Identification

Who are our stakeholders?

Stakeholder Analysis

What are their stakes?

What opportunities and

challenges are presented by our

stakeholders?

Stakeholder Engagement

What corporate social

responsibilities do we have to our stakeholders?

What strategies, actions, or

decisions should we take to best deal

with these responsibilities?

Elements of Stakeholder Relations Management

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Stakeholder Identification

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To whom does the organization have legal obligations?

Who might be positively or negatively be affected by the organizations activities or decisions?

Who manifested concern about the issues or impacts?

Who has been involved in the past when similar concerns need to be addressed?

Who can help the organization address specific impacts?

Who can adversely affect the organization’s ability to meet its important objectives?

Who would be disadvantaged if they were excluded from the engagement?

Who in the value chain is affected?

Who may have an impact on the reputation of an organization?

Who may influence the policy and regulatory environment in which the organization operates?

Who may impact on the value of the organization?


(“The Primordial Stakeholder: Advancing the Conceptual Consideration of Stakeholder Status for Natural Environment ,” - Driscoll, C. and Starik, M. Journal of Business Ethics, Vol. 49, 2004)

(“The Natural Environment as a Primary Stakeholder: the Case of Climate Change,” - Haigh, N. and Griffiths, A. Business Strategy and the Environment, Aug 2007)

Legitim

acy Proximity

Urgen

cyPower

3 3

3 3

4 22

2

2

11

1 1

0 = Non-Stakeholder1 = Latent Stakeholder2 = Expectant Stakeholder3 = Definitive Stakeholder4 = Primary Stakeholder

Stakeholder Attributes and Typology

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Real-life Example of Stakeholder Analysis

Stakeholder Category Power Legiti-macy Urgency Proxi-mity Score(/20)

Bupati pr 5 5 5 5 20

BAPPEDA pr 4 5 5 5 19

BPN pr 4 5 5 5 19

BAPEDALDA pr 3 5 5 5 18

Gunung Village de 2 4 5 3 14

Wira (informal leader) de 5 5 2 3 15

Ethnic Community (Jakarta) la 1 1 1 2 5

Village Youth Org. de 4 5 1 5 15

26(Adapted from Stakeholder Analysis and Perception Study conducted by Kiroyan Partners around a mining operation in Indonesia as basis for Stakeholder Engagement and Community Development programs)

Stakeholder Engagement

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Stakeholder engagement involves dialogue between the organization and one or more of its stakeholders

Stakeholder engagement can take many forms – it can begin as a response by an organization to one or more stakeholders and can take place in informal or formal settings

Stakeholder engagement should be interactive and is intended to provide opportunities for stakeholders’ views to be heard – its essential feature is that it involves two-way communication


Level of Engagement Methods of EngagementConsultLimited two-way engagement: organization ask questions, stakeholders answer

Surveys Focus groups Meetings with selected stakeholder/s Public meetings Workshops Online feedback mechanisms Advisory committees

Negotiate Collective bargaining with workers through their unions

InvolveTwo-way or multi-way engagement: learning on all sides but stakeholders and organization act independently

Multi-stakeholder forums Advisory panels Consensus building process Participatory decision making process Focus groups Online feedback schemes

CollaborateTwo-way or multi-way engagement : joint-learning, decision making and actions

Joint projects Joint ventures Partnerships Multi-stakeholder initiatives

EmpowerNew forms of accountability; decisions delegated to stakeholders; stakeholders play a role in governance

Integration of stakeholders into governance, strategy and operations management

Levels and Methods of Stakeholder Engagement

(“AA1000 Stakeholder Engagement Standard 2011 – Final Exposure Draft,” – AccountAbility, 2011) 28

Market Environment

Nonmarket Environment

Resources

Corporate Values and Ideology

Business Strategy

COMPETITIVE ADAVANTAGE

Social Responsibility

Financial Performance

Social Performance

(“Corporate Social Strategy: Stakeholder Engagement and Competitive Strategy,” - Bryan W. Husted & David Bruce Allen, 2011)

Traditional View of Business and Social Responsibility

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THANK YOU

PT KOMUNIKASI KINERJAMenara Karya, 10th Floor Suite

HJl. HR Rasuna Said Blok X-5 Kav.

1-2Jakarta 12950 – INDONESIA

T: +6221 5794 4694F: +6221 5794 4696

[email protected]

111124 nk nacd business ethics and csr

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Transcript of 111124 nk nacd business ethics and csr